Fashion flourished last year from top to bottom as consumers reawakened from the worst of the COVID-19 lockdowns — but now another shakeout seems in the offing with inflation and supply chain turmoil meeting COVID-19 and geopolitical uncertainly from Russia’s war in Ukraine.
But Scott Baxter, president, chairman and chief executive officer of Kontoor Brands Inc., said the changes the Lee- and Wrangler-parent company has made since spinning off from VF Corp. in 2019 will land it among the winners in fashion’s future.
“You’re going to see the separation there in ‘22 and ‘23 by really well-run companies,” Baxter told WWD, referring to the divide between the winners and losers in the more uncertain future.
Whereas everyone gained last year, he said the winners going forward will have “a really good strategy, have a really good balance sheet [and] are investing back into their brands and their business and their people.”
“We like to think that we’re in that category,” the CEO said.
Baxter said that, ultimately, it is the results that show whether a strategy is the right strategy. He said Kontoor has wagered on digital, T-shirts, workwear and outdoor and that “all of those big bets have paid off.”
The firm’s first-quarter net income increased 25 percent to $80.8 million, or $1.40 a diluted share, well ahead of the $1.15 to $1.25 the company guided to. Year-ago earnings tallied $64.5 million, or $1.09 a year ago.
Revenues for the three months ended April 2 increased 4 percent to $679.7 million from $651.8 million. That put the top line $20 million to $30 million ahead of the company’s guidance.
Kontoor nudged up its outlook for the year and is now looking for earnings per share to rise 11 percent to 13 percent to a range of $4.75 to $4.85, up from earlier guidance calling for EPS of $4.65 to $4.75. Revenues are now slated to grow about 10 percent to more than $2.7 billion where the firm previously guided to high-single-digit growth.
The Lee and Wrangler brands are, in effect, waking up and asserting themselves after being part of the much-larger VF, where the focus was on powerhouse brands like The North Face.
“We kind of lost our consumer a little bit,” Baxter said of the time before the spinoff.
Now the company is investing in brand.
On a conference call with analysts, Baxter talked about “demand creation” and detailed investments in advertising.
Lee launched the Lee Originals equity campaign last year and also partnered with influencers “that sparked heightened brand awareness from SoHo to London to Shanghai,” Baxter said. The brand will also be sponsoring the Bonnaroo music festival in June.
Likewise, Wrangler, celebrating its 75th anniversary this year, is reaching out to new consumers on social media and looking to build its presence.
In the interview, Baxter said that work on image — as well as investments to build the digital business — leave the brands in good stead.
And he said both Wrangler, particularly in the Southwestern U.S., and Lee, in China, were positioned to gain once travel spending started back up.
The jeans names are also set to benefit from what many call a strong denim cycle, which Baxter described as more of a permanent pivot.
“It’s not a cycle,” he said. “Cycle implies to me that you’re going to cycle out. I just don’t see a cycle out. Denim is here to stay. Causal is here to stay, that is not going back.”
At the same time, the CEO knows there are more changes in store for the market this year, but believes central bankers will get inflation under control by next year.
And that’s very much in keeping with the Baxter ethos.
“We pride ourselves on being optimistic, but also grounded in reality,” he said. “We understand what’s going on in the marketplace, but we’re not going to let that dictate our results and we’re going to go ahead and play offense in a very difficult environment and we’re going to control our own destiny. I call it leadership and we’re goin to lead this industry and that’s what’s happening.”
In a very bad day for the market, where the S&P 500 traded down 3.6 percent, Kontoor’s shares were off 0.3 percent to $41.04 on Thursday.
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